Sequoia Capital’s Warren Hogarth on Greentech Startups

Submitted by system on November 2, 2011 - 11:56

Renewable energy is rapidly gaining momentum and signs seem to indicate that widespread adoption could be right around the corner.

Take your pick from any of a myriad of meaningful metrics and milestones -- global investment in renewables topping $200 billion in 2010; a predicted 1.8 gigawatts of solar installed in the U.S. in 2011; ambitious renewables targets and other sustainability policies in place in nearly 120 countries -- and it seems pretty clear that change is afoot on an order of magnitude that would scarcely have been imaginable even a few years ago.

But despite the undeniable progress that has been made, this nascent industry still has got a long way to go before it can stand on its own two feet. Even among the leading firms in the field, fundamentals are shaky; margins are often perilously slim. And despite a thriving entrepreneurial culture that’s producing a prodigious influx of innovative ideas, startups in the renewable space have an alarmingly high mortality rate.

Before we can hope to achieve widespread dissemination of sustainable energy technology, we need to consider the practice of building sustainable businesses from the ground up. At Sequoia Capital, we’ve had the privilege of working with some very special founders who have thought about the energy market differently. They’ve taught us a thing or two about how to transform dreams into realities. Consistently, we’ve found that the most sustainable companies have a common set of characteristics.

A new way in. Sustainable startups radically rethink traditional means of market entry and home in on one-in-a-million market opportunities. Founded in 2007, home energy management startup EnergyHub eschewed the traditional top-down approach and opted instead to emphasize consumer empowerment. To that end, the firm uses lower-cost, off-the-shelf technology stacks to keep the prices of its thermostats and other devices well within reach for the average residential ratepayer. Making its mark in a market that barely existed a few years ago, EnergyHub’s partners have now sold more than 100,000 EnergyHub-powered thermostats, amounting to 100 megawatts of dispatchable assets.

A David-and-Goliath mentality. Sustainable startups have to stare down formidable incumbents and find a way to make a dent in crowded and well-established markets -- sometimes by fomenting a paradigm shift, sometimes by learning to play nice with the big guys. Armed with a groundbreaking technology distilled from a decade of academic research, high-power laser startup Foro Energy found itself in a market populated by incumbents with household names and hundred-year-long histories. Founder and CEO Joel Moxley discovered that these corporate behemoths responded best to an approach short on Silicon Valley swagger and long on operational efficiency and technological acumen – a pitch style the startup was able to parlay into a lucrative partnership with Chevron.

A penchant for penny pinching. Sustainable startups manage to get -- and keep -- the ball rolling with far less capital than you might think. Solar-as-a-service firm SunRun’s very existence is predicated on the premise of minimizing the upfront cost of solar for consumers, and president and co-founder Lynn Jurich points out that the firm’s managerial ethos places a similar emphasis on streamlined, cost-conscious processes. In the early days of SunRun’s existence, Jurich and co-founder Edward Fenster handled virtually every aspect of operations themselves – including interacting face-to-face with prospective customers at county fairs and community expos. And rather than taking on the substantial costs of maintaining a permanent sales presence in communities across the country, SunRun cultivated relationships with established installers and resellers. According to Jurich, this approach not only saved money – it also helped the founders develop an in-depth understanding of customer pain points. Today, SunRun holds a commanding 30 percent share in one of the fastest-growing renewables markets.

When it comes to laying the groundwork for mass adoption of renewables, the development of potentially world-changing technologies is only one part of the process.

Those of us who have a hand in helping to shape the trajectory of this vitally important industry should do whatever we can to foster sound, solid and sustainable strategies and management models.